[Federal Register Volume 66, Number 51 (Thursday, March 15, 2001)]
[Rules and Regulations]
[Pages 15015-15017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6399]



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  Federal Register / Vol. 66, No. 51 / Thursday, March 15, 2001 / Rules 
and Regulations  

[[Page 15015]]



DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 506, 560, 563, 566, and 584

[No. 2001-13]
RIN 1550-AB42


Liquidity

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Interim rule with request for comments.

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SUMMARY: The Office of Thrift Supervision (OTS) is revising its 
regulations to implement the recent repeal of a statutory liquidity 
requirement. Today's rule removes the existing regulation that requires 
savings associations to maintain an average daily balance of liquid 
assets of at least four percent of its liquidity base. This rule also 
makes necessary conforming changes.

DATES: This interim rule is effective March 15, 2001. Written comments 
must be received by May 14, 2001.

ADDRESSES: Mail: Send comments to Manager, Dissemination Branch, 
Information Management and Services Division, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552, Attention Docket 
No. 2001-13.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby 
Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, 
Attention Docket No. 2001-13.
    Facsimile: Send facsimile transmissions, Attention Docket No. 2001-
13, to FAX Number (202) 906-7755; or to FAX Number (202) 906-6956 (if 
comments are over 25 pages).
    E-mail: Send e-mail to public.info@ots.treas.gov">public.info@ots.treas.gov, Attention Docket 
No. 2001-13, and include your name and telephone number.
    Public Inspection: You may inspect comments at the Public Reference 
Room, 1700 G Street, NW., from 10 a.m. until 4 p.m. on Tuesdays and 
Thursdays. For a copy of comments and/or an index of comments by 
facsimile, telephone the Public Reference Room at (202) 906-5900 from 9 
a.m. until 5 p.m. on business days. Comments and the related index also 
will be posted on the OTS Internet Site at www.ots.treas.gov.

FOR FURTHER INFORMATION CONTACT: Joe Casey, Program Analyst, Office of 
Supervision Policy, (202) 906-5741; Sally Warner Watts, Counsel 
(Banking and Finance), Regulations and Legislation Division, Office of 
Chief Counsel, (202) 906-7380; Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552. Persons wishing to access any of 
these telephone numbers by text telephone (TTY) may call the toll-free 
Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Changes Made by This Rule

A. Liquidity Requirement

    Before its recent amendment, section 6 of the Home Owners' Loan Act 
(HOLA) required each savings association to maintain a minimum amount 
of liquid assets. 12 U.S.C. 1465 (1994). Section 6 required the 
Director of OTS to set this minimum amount at not less than four and 
not more than ten percent of each institution's liquidity base. OTS 
implemented this liquidity requirement at 12 CFR part 566, which 
establishes the percentage as ``at least four percent.'' See existing 
Sec. 566.2(b). Part 566 also imposes a general requirement that each 
savings association must maintain sufficient liquidity to ensure safe 
and sound operations (Sec. 566.2(a)), establishes related recordkeeping 
requirements (Sec. 566.4), and defines necessary terms (Sec. 566.1).
1. Statutory Liquidity Requirement
    The original purpose of section 6 was ``to provide a means for 
creating effective and flexible liquidity in savings associations which 
can be increased when mortgage money is plentiful, maintained in easily 
liquidated instruments, and reduced to add to the flow of funds to the 
mortgage market in periods of credit stringency.'' 12 U.S.C. 1465(a) 
(1994). Over the years, the secondary market has developed to provide 
an adequate flow of funds to the mortgage market. Accordingly, section 
1201 of the Financial Regulatory Relief and Economic Efficiency Act of 
2000 (Pub. L. 106-569, 114 Stat. 2944 (2000)) (FRREEA) repealed the 
statutory liquidity requirement for savings associations as 
unnecessary.\1\ In light of this statutory repeal, OTS is removing part 
566, except as discussed below.
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    \1\ 146 Cong. Rec. H 11,991 (daily ed. Dec. 5, 2000).
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2. Safety and Soundness Liquidity Requirement
    As noted above, Sec. 566.2(a) requires each savings association to 
maintain sufficient liquidity to assure its safe and sound operation. 
OTS imposed this requirement in 1997 to reflect OTS's position that the 
statutory liquidity requirement was not necessarily indicative of a 
safe level of liquidity, and to highlight that OTS determines the 
adequacy of an institution's liquidity on a case-by-case basis.\2\
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    \2\ 62 FR 62509-62513 62513 (Nov. 24, 1997).
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    OTS proposes to retain this regulatory liquidity requirement at 
Sec. 563.161, Management and Financial Policies. This rule simplifies 
the language of current Sec. 563.161(a), and adds a new paragraph 
codifying existing requirements that each savings association and 
service corporation maintain sufficient liquidity to ensure its safe 
and sound operation. The appropriate levels of liquidity will vary 
depending upon the types of activities in which the company engages.
    We invite comment on whether OTS should provide further guidance on 
this safety and soundness requirement. For example, should the 
regulation describe or list the types of investments or activities that 
OTS will consider in determining whether a savings association or 
service corporation is maintaining sufficient liquidity for safe and 
sound operation?

B. Definition of Liquid Assets

    Part 566 includes a definition of liquid assets and related 
definitions at Sec. 566.1. The definition of liquid assets includes 
cash, deposits in insured banks, government issued or guaranteed 
obligations, banker's acceptances, shares in open-ended management 
investment companies, corporate debt and commercial paper, mortgage-
related securities, and residential mortgage

[[Page 15016]]

loans. Since that definition is not needed for purposes of the repealed 
statutory liquidity requirement, OTS considered whether the definitions 
in Sec. 566.1 are needed for purposes of various other statutory and 
regulatory cross-references.
1. Federal Savings Association Investment Authority
    Section 1201 of FRREEA made a conforming change to section 
5(c)(1)(M) of the HOLA, which authorizes investments for federal 
savings associations. 12 U.S.C. 1464(c)(1)(M). Before FRREEA, section 5 
provided that investments that satisfy the liquidity requirement of 
section 6 of the HOLA are authorized investments for a federal savings 
association. OTS implemented section 5 of the HOLA by listing the 
categories of statutory investment authority in a chart in 12 CFR 
560.30. The entry for liquidity investments in that chart refers, in a 
footnote, to assets that qualify under the definition of liquid assets 
in Sec. 566.1(g).
    Section 1201 of FRREEA revised this investment authority provision 
to permit federal savings associations to invest in ``[i]nvestments 
(other than equity investments), identified by the Director, for 
liquidity purposes, including cash, funds on deposit at a Federal 
reserve bank or a Federal home loan bank, or bankers' acceptances.''
    OTS believes that the statutory investment authority under section 
5 of the HOLA, referenced in part 560, including the revised statutory 
definition of liquidity investments, covers all categories of 
investments that are covered in the definition of liquid assets in 
Sec. 566.1(g). Therefore, it is not necessary, at this time, to 
identify additional types of authorized liquidity investments to ensure 
that the investment authority still covers the categories listed in 
Sec. 566.1(g). We specifically invite public comments, however, on 
whether the Director should exercise her authority under section 
5(c)(1)(M) of the HOLA to identify other authorized investments for 
federal savings associations for liquidity purposes.
    Because the statutory listing of authorized investments is 
complete, the rule implementing the investment authority provision does 
not need to refer to Sec. 566.1(g). Accordingly, this interim rule 
removes the reference to Sec. 566.1(g) from the footnote for liquidity 
investments in Sec. 560.30(a).
2. QTL Requirement
    Section 10(m) of the HOLA contains the qualified thrift lender 
(QTL) requirement for savings associations. 12 U.S.C. 1467a(m). This 
section provides that a savings association may fulfill the qualified 
thrift lender test by having at least 65 percent of its portfolio 
assets in qualified thrift investments. Before FRREEA, the statutory 
definition of ``portfolio assets'' referred to the value of liquid 
assets of the type that satisfy the statutory liquidity requirement.
    Section 1201 of FRREEA revised the definition of portfolio assets 
in section 10(m)(4)(B)(iii) of the HOLA to refer to assets that satisfy 
the liquidity requirement as in effect the day before enactment of 
FRREEA. OTS construes this statutory change to apply the regulatory 
definition of liquid assets--as it existed before repeal of the 
liquidity requirement--to the portfolio asset element of the QTL test. 
While OTS regulations do not contain any provisions implementing the 
QTL test, OTS will make appropriate changes in guidance to incorporate 
this interpretation. OTS invites comment on this statutory 
interpretation.
3. Savings and Loan Holding Company Investment Authority
    OTS regulations at Sec. 584.2-1(a) address authorized investments 
for savings and loan holding companies (SLHCs). Specifically, this rule 
states that an SLHC, and any subsidiary that is not a savings 
association, may invest in ``the types of securities specified in 
Sec. 566.1.'' The predecessor to this provision was added in 1974 in 
response to a request from commenters that the agency clarify that an 
SLHC and any non-insured subsidiary other than a service corporation 
could invest in various types of government securities.\3\
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    \3\ 39 FR 22943 (June 25, 1974).
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    The types of securities listed in Sec. 566.1 are authorized 
investments for SLHCs under section 10(c)(2)(F)(ii) of the HOLA because 
multiple SLHCs were permitted by regulation to hold such investments as 
of March 5, 1987. 12 U.S.C. 1467a(c)(2)(F)(ii). Therefore, we believe 
the cross-reference to Sec. 566.1 in Sec. 584.2-1(a) is unnecessary and 
can be removed. OTS has made an additional conforming change to ensure 
that these investment activities will not be subject to a notice 
requirement under Sec. 584.2-1(c).
    The definitions of liquid assets and associated terms currently 
found in Sec. 566.1 are not needed in the regulations for the 
percentage liquidity requirement, the investment authority of savings 
associations, the QTL test, or the investment authority of SLHCs. 
Consequently, this interim rule removes Sec. 566.1.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires federal banking 
agencies to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. 12 U.S.C. 4809. All of the changes 
made in this rule, except for the revision of Sec. 563.161, remove 
language or add a simple phrase. We invite comment on whether the 
changes in this rule make OTS regulations easier to understand.

II. Justification for Interim Rule

A. Notice and Comment Requirement

    Section 553 of the Administrative Procedure Act (APA) permits an 
agency to issue rules without prior notice and comment if the agency 
finds good cause and explains its finding when it publishes the rule. 5 
U.S.C. 553(b)(B). A finding that notice and comment are impracticable, 
unnecessary, or contrary to the public interest constitutes good cause.
    As discussed more fully above, OTS has examined the need for the 
liquidity regulation and has determined that the regulation is no 
longer necessary. The safety and soundness liquidity requirement 
currently found in part 566, however, is preserved in part 563.
    Elimination of the rule implementing the statutory liquidity 
requirement decreases burden on the industry and permits savings 
associations more flexibility in responding to the marketplace for 
financial services. Accordingly, OTS concludes that it is unnecessary 
and contrary to the public interest to solicit public notice and 
comment on these changes before making the rule effective. Nonetheless, 
OTS invites comments on this interim rule during the 60-day period 
following publication. In developing a final rule, OTS will consider 
all public comments it receives within that period.

B. Effective Date Requirement

    Section 302 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRIA) requires that new OTS regulations and 
amendments to existing regulations take effect on the first day of a 
calendar quarter that begins on or after the date of publication of the 
rule. 12 U.S.C. 4802. The delayed effective date provision applies only 
if the rule imposes additional reporting, disclosure, or other new 
requirements on insured depository institutions. As a related matter, 
section 553 of the APA states that a rule must not be made effective 
before 30 days after its publication. 5 U.S.C. 553(b)(B). This APA 
provision does not apply, however,

[[Page 15017]]

if the rule grants or recognizes an exemption or relieves a 
restriction.
    OTS concludes that neither CDRIA nor the APA precludes the 
publication of this rule with an immediate effective date. This rule 
makes only burden reducing, clarifying, and technical conforming 
amendments to OTS rules.

III. Findings and Certifications

A. Executive Order 12866

    The Director of OTS has determined that this interim rule does not 
constitute a significant regulatory action for the purposes of 
Executive Order 12866.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires the OTS to prepare an 
Initial Regulatory Flexibility Analysis when the agency must publish a 
general notice of proposed rulemaking. 5 U.S.C. 603. As noted 
previously, OTS has determined that it is not necessary to publish a 
notice of proposed rulemaking for this interim final rule. Accordingly, 
the RFA does not require an initial regulatory flexibility analysis.
    Nonetheless, OTS has considered the likely impact of the rule on 
small entities and believes that the rule will not have a significant 
impact on a substantial number of small entities. This interim rule 
imposes no new requirements, and makes only burden reducing, 
clarifying, and technical conforming amendments to OTS current 
regulations.

C. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMA) 
applies only when an agency is required to issue a general notice of 
proposed rulemaking or when it publishes a final rule for which a 
general notice of proposed rulemaking was published. 2 U.S.C. 1532. As 
noted above, OTS has determined, for good cause, that publication of a 
proposed rule is not necessary. Accordingly, OTS has concluded that the 
UMA does not require OTS to conduct an unfunded mandates analysis of 
this interim rule.
    Moreover, OTS finds that this interim rule will not result in 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more in any one year. 
Rather, the rule imposes no new requirements and makes only burden 
reducing, clarifying, and technical conforming amendments to current 
OTS regulations. Accordingly, OTS has not prepared a budgetary impact 
statement for this rule or specifically addressed the regulatory 
alternatives considered.

List of Subjects

12 CFR Part 506

    Reporting and recordkeeping requirements.

12 CFR Part 560

    Consumer protection, Investments, Manufactured homes, Mortgages, 
Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 563

    Accounting, Advertising, Crime, Currency, Investments, Reporting 
and recordkeeping requirements, Savings associations, Securities, 
Surety bonds.

12 CFR Part 566

    Liquidity, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 584

    Administrative practice and procedure, Holding companies, Reporting 
and recordkeeping requirements, Savings associations, Securities.

    Accordingly, the Office of Thrift Supervision amends parts 506, 
560, 563, 566, and 584 in Title 12, Chapter V, Code of Federal 
Regulations, as set forth below:

PART 506--INFORMATION COLLECTION REQUIREMENTS UNDER THE PAPERWORK 
REDUCTION ACT

    1. The authority citation for part 506 continues to read as 
follows:

    Authority: 44 U.S.C. 3501 et seq.


Sec. 506.1  [Amended]

    2. Amend Sec. 506.1(b) by removing the entry for 566.4.

PART 560--LENDING AND INVESTMENT

    3. The authority citation for part 560 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3, 
1828, 3803, 3806; 42 U.S.C. 4106.


Sec. 560.30  [Amended]

    4. Amend the table in Sec. 560.30 by removing footnote 10 and by 
redesignating footnotes 11 through 20 as footnotes 10 through 19, 
respectively.

PART 563--OPERATIONS

    5. The authority citation for part 563 continues to read as 
follows:

    Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468, 
1817, 1820, 1828, 1831o, 3806; 42 U.S.C. 4106.

    6. In Sec. 563.161, revise paragraph (a) to read as follows:


Sec. 563.161  Management and financial policies.

    (a) (1) For the protection of depositors and other savings 
associations, each savings association and each service corporation 
must be well managed and operate safely and soundly. Each also must 
pursue financial policies that are safe and consistent with economical 
home financing and the purposes of savings associations. In 
implementing this section, OTS will consider that service corporations 
may be authorized to engage in activities that involve a higher degree 
of risk than activities permitted to savings associations.
    (2) As part of meeting its requirements under paragraph (a)(1) of 
this section, each savings association and service corporation must 
maintain sufficient liquidity to ensure its safe and sound operation.
* * * * *

PART 566--[REMOVED]

    7. Remove part 566.

PART 584--REGULATED ACTIVITIES

    8. The authority citation for part 584 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1468.


Sec. 584.2-1  [Amended]

    9. Amend Sec. 584.2-1 by removing the last sentence of paragraph 
(a); and by adding to paragraph (c)(1), the phrase ``(other than 
purchase or sale of a government debt security)'' after the phrase 
``this section''.

    Dated: March 2, 2001.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 01-6399 Filed 3-14-01; 8:45 am]
BILLING CODE 6720-01-P